Opposition Brief — Koveleskie v. SBC Capital Markets, Inc.

Supreme Court brief1999

Ask Donna

What actually matters in this document.

Text

Supreme Court, U.S,

FILED

No. 98-1778 aa we

| CLERK

IN THE

Supreme Court of the United States

MARY KOVELESKIE,

Petitioner,

SBC CAPITAL MARKETS, INC.

a/k/a SBC WARBURG, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

RESPONDENT?’S BRIEF IN OPPOSITION

CATHERINE M. MASTERS

Counsel of Record

NEIL LLOYD

SCHIFF HARDIN & WAITE

Attorneys for Respondent

Warburg Dillon Read LLC

6600 Sears Tower

Chicago, Illinois 60606

Dated: June 4, 1999 (312) 258-5500

153309 @J Counse! Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 + (800) 359-6859

QUESTIONS PRESENTED FOR REVIEW

1. The transaction costs attending litigation in federal

court may not be identical to the costs attending arbitration

under securities industry arbitration procedures. Is a

hypothetical risk that arbitration of Title VII claims will

involve non-identical costs a ground to hold an arbitration

agreement invalid?

2. The Court has repeatedly held that before arbitration

occurs it is premature to complain that the arbitrators may

misapply the law. Is a hypothetical risk that arbitrators may

misapply the law regarding Title VII a ground to hold an

arbitration agreement invalid?

3. Did the 1991 Civil Rights Act overrule Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), and

exempt civil rights laws, including Title VII and ADEA,

from the Federal Arbitration Act?

LIST OF PARTIES AND

CORPORATE AFFILIATES

The caption of the petition for writ of certiorari names

“SBC Capital Markets, Inc. a/k/a SBC Warburg, Inc.” as

the Respondent. The proper name of the Respondent is

Warburg Dillon Read LLC.

The Respondent has three equity owners: UBS AG

(52.75%), UBS (USA) Inc. (47%), and UBS Inc. (0.25%).

UBS (USA) Inc. is a Delaware corporation owned by UBS

AG (95%) and UBS Inc. (5%). UBS Inc. is a New York

corporation wholly owned by UBS AG.

iii

TABLE OF CONTENTS

Questions Presented for Review ...........+-5.

List of Parties and Corporate Affiliates ..........

y) |, ge PP errerrrrrrere eee

Table of Cited Authorities .............-+-005.

Opinions Below ..........ceccceccceesccecess

Statement of the Case .......ccccccccecccccees

A. The Petitioner’s Arbitration Agreement. ...

B. The Petitioner’s Complaint and Proceedings

DE de oue sees Cv seeerevsseUsvseves

ccc ens s ved benevenveeeves

Reasons for Denying the Writ ...............-..

I. The “Forum Fees” Issue Does Not Merit

ae ee ae og tee eae WON

A. The Petitioner Lacks Standing. ......

B. There is No Unsettled Issue of Great

rere eee eee eee eee

C. No Circuit Split Exists. .............

Contents

II. The “Might Not Follow The Law” Issue Does

POUL EE SEUIS so vecevseccesedtseeres

The Objection is Premature. .........

There is no Circuit Split. ...........

Ill. The Effect Of The 1991 Civil Rights Act On

Arbitration Agreements Does Not Warrant

MS b4cucnbacddtanedeaousees rere

Conclusion

The 1991 Civil Rights Act Does not

Address the “Forum Fee” or “Might not

Follow the Law” Issues. ............

The Effect of the 1991 Civil Rights Act

on Gilmer Does not Merit Review. ...

Page

TABLE OF CITED AUTHORITIES

Cases:

Alford v. Dean Witter Reynolds, Inc., 939 F.2d 229

COG, SHEE 0 6c cd kdccceussvisesesnvennes

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265

er rrr ara epee ry fe

Austin v. Owens-Brockway Glass Container, Inc.,

78 F.3d 875 (4th Cir.), cert. denied, US. _.,

CTF Hs Gh Ge GHD kc ntoe cercnéscsvessaeei

Baker v. Carr, 369 U.S. 186 (1962) .............

Barnett v. City of Chicago, 1999 WL 138813 (N.D.

Ses NE Sy SU Gas aceevacucevenseseuten

Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698

Ces Gr SUN 6b horn Vks oes eneeeneseanes

Bunge Corp. v. Williams, 45 Ill. App. 3d 359, 359

N.E.2d 844 (Sth Dist. 1977) ..............4..

Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585

SUED 6 6 ecodeee dace hed sendieee eet ataees

Cole v. Burns Int’l Security Servs., 105 F.3d 1465

Ce ee SED do paeiseueewascsenaeeae

Contreras v. City of Chicago, 119 F.3d 1286 (7th

Se SPD Sccncanebevsduebsch eee eewerre

Page

Cited Authorities

Page

Cypress-Fairbanks Indep. School Dist. v. Michael

Fig LEG FO SOD ESR CR. IGFET) cccccccvessess 14

DeGaetano v. Smith Barney Inc., 983 F. Supp. 459

CRIs SOUTD socevecctdeccaseuvecdeenns 18

Delta Air Lines, Inc. v. August, 450 U.S. 346 (1981)

TTT TITT TIT TTTTTTT rr eee 13,14

Delta Air Lines, Inc. v. Colbert, 692 F.2d 489 (7th

Ss RED 2 veccesecsenavnunbegsanee bees 14

DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818

(2d Cir. 1997), cert. denied, U.S. _, 1185S.

Ge: Ge CREO 6 6 ccccctéceeediensaeenn esos «6S

Doctor's Assocs. v. Casarotto, 517 U.S. 681 (1996)

$nt000000nneeeneseeseesenecahdenvanenie 8

Duffield v. Robertson Stephens & Co., 1996 U.S.

Dist. LEXIS 21571 (N.D. Cal. Aug. 26, 1996),

aff'd in part, rev'd in part, 144 F.3d 1182 (9th

Cir.), cert. denied, _U.S. _, 119 S. Ct. 445

GESUEE 64.000 civnncdievasdebasushavewereenn 17

Duffield v. Robertson Stephens & Co., 144 F.3d 1182

(9th Cir.), cert. denied, U.S.__,119S. Ct. 445

CORO o06.0:060540n0nsenunes vee oe en 15, 19, 24, 25

Ezold v. Wolf, Block, Schorr & Solis-Cohen, 157

Fa 4S Gb PU SUED, 5. bec sence eksa Rear 14

Cited Authorities

Page

First Options of Chicago, Inc. v. Kaplan, 514 US.

SO COEEE Se cccebesuvssteduteedeasvacess 8

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

i) ee er reg ee ene y= passim

Glennon v. Dean Witter Reynolds, 83 F.3d 132 (6th

Gals SEU we cecewhendeseeteestsbadeevasdes 4

Hooters of America, Inc. v. Phillips, 1999 WL

194438 (4th Cir. April 8, 1999) .............. 19, 20

Howard v. Anderson, 36 F. Supp. 2d 183 (S.D.N.Y.

Dee: Sab 4s un ensues enauenuNeneeetieuy aes 16

Hurst v. Prudential Securities Inc., 21 F.3d 1113 (9th

Cir. 1994) (table), 1994 WL 118097 .......... 24

Illyes v. John Nuveen & Co., 949 F. Supp. 580 (N.D.

ks ME tad Gov caves ound ee eeereenoaeekes 16

In re Arbitration between Owen-Williams and

Merrill Lynch, 1997 WL 34966 (NASD, Nov. 12,

SE Sa adewh Sener e ue eee ceekeewes 11

In re Sinclair, 870 F.2d 1340 (7th Cir. 1989) ..... 22

Jones v. Continental Corp., 789 F.2d 1225 (6th Cir.

SES Gis ke ea bteaceorlersersdeeseeeeeen 14

vill

Cited Authorities

Page

Kewanee Prod. Credit Ass'n v. G. Larsons & Sons

Farms, 146 Ill. App. 3d 301, 496 N.E.2d 531 (3d

it Sh ccckeneveesssteeuwendeesusaeuns 9

Landgraf v. USI Film Prods., 511 U.S. 244 (1994)

TTT TT EET CETTE TT OOO TE UTEP CTE T TTT eee re 22

Lorillard v. Pons, 434 U.S. 575 (1978) ......... 22

Mago v. Shearson Lehman Hutton Inc., 956 F.2d 932

es SEED oven dsanaseeueeueeeeusess 19, 24, 25

Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

39 F.3d 1482 (10th Cir. 1994) ............... 24

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 628 (1985) ......

SideeedeestNaneaaeaeren 8, 9, 13, 17, 18, 19, 20, 22

Montes v. Shearson Lehman Brothers, Inc., 128 F.3d

SE Cee Ge SEE cue ecucereesuneaeauess 18

Moose Lodge No. 107 v. Irvis, 407 U.S. 163 (1972)

Oy EN Ppt Bee eye Perce 11

Morton v. Mancari, 417 U.S. 535 (1974) ........ 23

Moses H. Cone Mem. Hosp. v. Mercury Const., 460

oo Be: SR re erry ere rete Peer 7

Cited Authorities

Page

Paladino v. Avnet Computer Techs., 134 F.3d 1054

SR GEN SOU ba cecdsadassnseteseceeenees 15,19

Patterson v. Tenet Healthcare, Inc., 113 F.3d $32

as EE 40 bde) ced eeeeten sc ceaeeesie be 24

Perry v. Thomas, 482 U.S. 483 (1987) ..........

Pion v. Liberty Dairy Co., 922 F. Supp. 48 (W.D.

Se EE doa per eed eeascaeuee ise nkenenis 14

Poe v. John Deere Co., 695 F.2d 1103 (8th Cir. 1982)

OCTET EVE Oe CIET TT ECP O TE TORT eee 14

Rodriguez de Quijas v. Shearson/American Exp.,

BOG, TPO Ue SFT CLEP a voc ccpevccvtveres 8, 22

Rosenberg v. Merrill Lynch Pierce Fenner & Smith,

Inc., 170 F.3d 1 (1st Cir. 1999) .. 6, 13, 16, 17, 22, 25

Seus v. John Nuveen & Co., 1997 WL 325792 (E.D.

Pa. June 2, 1997), aff'd, 146 F.3d 175 (3d Cir.

1998), cert. denied, _U.S. _, 119 S. Ct. 1028

SE 6 i 9-065s 0s hebaes nes eeTeeee ett 17

Seus v. John Nuveen & Co., 146 F.3d 175 (3d Cir.

1998), cert. denied, U.S. _,119S. Ct. 1028

SE 8435 k Kaaere reac paar aar 15, 23, 25

Shankle v. B.G. Maintenance Management, 163 F.3d

Seow CPO Ge BOND bp cbs cckedcseoeeoweud. 15, 19

Cited Authorities

Page

Shearson/American Exp., Inc. v. McMahon, 482 U.S,

BOOCISSTD ceccsrcsencvecvecetcusévers 8,9, 17, 21

Skouby v. Prudential Ins,, \30 F.3d 794 (7th Cir.

POPC va becurcdcecasuccenscavecsucereeess 5

Tatum v, Laird, 408 U.S. 1 (1972) 2.6... 6... aes 11

Valdiviezo v. Phelps Dodge, 995 F. Supp. 1060 (D.

Sa TG vs sada Vieccetsaueacenaseesaxes 18

Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer,

515 U.S. 528 (1995) ....... 11, 12, 14, 18, 19, 20, 23

Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305

Gi GG See oscnechucdnciedstacusctesa> 24

Wisconsin R.R. Comm'n v. Chicago, B. & O. R.R.,

yo gtk Re . ere or Pere 22

Statutes:

PU eB ion den cesnccese vers eaeneeriees 7

Be ae SUE sh osc dee dneedssedeseucceu a 13

RR oe Pee eee 15

Sore Gates Meee FOUR, © EG ccc cvcccvevuccunes 21,20

Cited Authorities

Rules:

United States Supreme Court Rule 14.1(a)

Ps Gee Ges EE oc knoe cbeversaecseacseses

Other Authorities:

OF ee OTE 6 bw hs enced awntenceeees

137 Cong. Rec. H9505-01 (Nov. 7, 1991) ........

137 Cong. Rec. $15472-01 (Oct. 30, 1991)

American Stock Exchange Rule 600(a) (American

Stock Exchange Guide (CCH) 4 9540 (1996)) ..

Stephen Breyer, On the Uses of Legislative History

in Interpreting Statutes, 65 S. Cal. L. Rev. 845

SO A WeVene resins casi ee teoneweneneeces

CBOE Rule 18.1 (CBOE Constitution & Rules

CLASES DOPED CEOOEED ccccvcccenctcocevéses

H.R. Rep. No. 40(1)97, reprinted in 1991

Pardes GUE ccctestcevevssseceseuvess

xii

Cited Authorities

NASD Rule 10101 (NASD Manual (CCH) at 7511

CEPPODD vvcvcvcevesvevesersbeccevenvenenes '

Se ee UD oo 6.5 40 60300 bears deeee ee

SE I en vc ab bee bieeeeee cee

SE ED SED sc é-6 dw KOK Ce aR Ree

NYSE Rule 347 (NYSE Guide (CCH) 4 2347 (1995))

‘e829 4886.96 624208242 068.8 OO 26 CGO Se 2888 Pe 6 6 a So

PHLX Bylaws § 10-8 (Philadelphia Stock Exchange

Guide (CCH) 4 1232 (1996)) ....cccccccccccs

PSE Rule 12 (Pacific Stock Exchange Guide (CCH)

yi rr ree rrr rn

SEC Release No. 34-32261, 58 Fed. Reg. 27656

eu} CPO ePCrerse Cede esee@ec#t € Ct eee Beets 2 et 6.0 2 ee

SEC Rel. No. 34-40109, 63 Fed. Reg. 35299, 1998

We PONG 6 ic dkeetuncsateeeavnesete ieee

SEC Rel. No. 34-40479, 63 Fed. Reg. 52782, 1998

| rrr rrr yror rss pee re Y

xiii

Cited Authorities

Page

SEC Rel, No, 34-40517, 1998 WL 681447 ....... 4

SEC Rel. No. 34-40858, 64 Fed. Reg. 1051, 1999

EE 4

SEC Rel. 34-41056, 64 Fed. Reg. 10041 (March 1,

SS 10, 11, 12, 13

SEC Rel. No. 34-41080, 1999 WL 89027 ........ 4

SEC Rel. No. 34-41350, 1999 WL 261839 ....... 4

OPINIONS BELOW

The District Court’s March 18, 1998 order, which denied

the Respondent’s motion to compel arbitration, was a minute

order. Appendix B to the petition reprints only the reverse side

of the minute order. The face of the minute order states:

Defendant’s motion to dismiss (4-2) and its motion

to compel arbitration (4-1) are denied. Under recent

authority, the discovery sought by plaintiff is

appropriate before a decision can be reached on the

issue of arbitration. Status hearing set for 4/17/98 at

9:45 a.m.

R. 31.!

STATEMENT OF THE CASE

The Petitioner’s Title VII claims are facially subject to

arbitration because she signed an agreement to arbitrate all

employment claims, identical to the agreement held enforceable

in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).?

In that agreement, the Petitioner agreed to arbitrate all claims

between herself and her employer, including employment-

related claims, at the instance of either party. Now she urges

three reasons why she should be relieved of her agreement:

(1) The possibility that in arbitration a claimant

might incur certain fees that have no exact

1. Citations to the Pleading Volume of the Record on Appeal are

in the form “R. __.” The Exhibits Volume of the Record on Appeal

actually contains a single plaintiffs brief (R. 11), with attached exhibits.

Citations to the Appendix to the Petition are in the form “A. __.”

2. In addition to claims under Title VII, the Petitioner also asserted

below claims under the Equal Pay Act and the New York Human «ughts

Law. The Seventh Circuit held that all of these claims are subject to

arbitration under the Petitioner’s arbitration agreement. A. 2a, 18a. The

Petitioner challenges that ruling only as it relates to her Title VII claims,

conceding that her other claims are arbitrable.

counterpart in litigation assertedly may chill

unemployed and impoverished claimants from

asserting Title VII claims.

(2) Though no arbitration has occurred, the

Petitioner fears that arbitrators may misapply the

law.

(3) The 1991 Civil Rights Act, enacted six months

after Gilmer and providing that arbitration of Title

VII and other civil rights claims is “encouraged . . .

where appropriate and to the extent authorized by

law,” purportedly codifies a pre-Gilmer hostility to

arbitration.

The issues urged by the Petitioner are not only fraught with

problems of standing and prematurity, but are otherwise

unworthy of review. The Federal Arbitration Act (“FAA”)

mandates enforcement of agreements to arbitrate statutory

disputes unless: (1) there are contract formation defects under

state law; or (2) Congress plainly overrode the FAA in the statute

at issue. The purported “forum fees” and “might not follow the

law” issues asserted here are not contract formation defects,

nor is there any credible reason to believe Congress intended to

exempt Title VII from the FAA on these (or any other) bases.

Nor, contrary to the Petitioner’s assertions, is there a circuit

split on whether agreements to arbitrate Title VII claims are

unenforceable on these bases.

A. The Petitioner’s Arbitration Agreement.

The Petitioner held a variety of employment positions with

the Respondent, the last of which was as a securities trader. To

protect customers, the SEC requires securities traders to register

with the exchanges on which they trade.’ In February 1995 the

Petitioner therefore registered with five exchanges: the New

3. 17 C.F.R. § 240.1567-1; see SEC Release No. 34-32261, 58

Fed. Reg. 27656.

York Stock Exchange (“NYSE”), the National Association of

Securities Dealers (“NASD”), the Chicago Board Options

Exchange (“CBOE”), the Philadelphia Stock Exchange

(“PHLX”), and the Pacific Stock Exchange (“PSE”). R. 5,

Ex. A.

There is a standard form for registering with any exchange,

called “Form U-4: Uniform Application for Securities Industry

Registration or Transfer.” Form U-4 (the same agreement that

the Court construed in Gilmer, 500 U.S. at 23) is a contract

between the registering trader and each designated exchange.

Id. at 25 n.2. The Form U-4 contract includes, under the heading

“THE APPLICANT MUST READ THE FOLLOWING VERY

CAREFULLY,” an agreement by the applicant to follow any

arbitration rules adopted by the designated exchanges for

resolving disputes between the applicant and his or her

employer. R. 5, Ex. A at 4. Not every exchange has such rules,‘

but at the time the dispute in this case arose, all five of the

exchanges with which the Petitioner registered had rules

requiring arbitration of disputes between the registrant and his

or her employer, if either party requested it.°

4. As the Seventh Circuit noted below, A. 16a n.2, the American

Stock Exchange does not. See American Stock Exchange Rule 600(a)

(American Stock Exchange Guide (CCH) 4 9540, at 2811 (1996))

(AMEX rules require arbitration of some disputes, but not.disputes

between associated members (i.e., traders) and their firms).

5. See NYSE Rule 347 (NYSE Guide (CCH) { 2347 (1995)):

NASD Rule 10101, 10201 (NASD Manual (CCH) at 7511 (1996));

CBOE Rule 18.1 (CBOE Constitution & Rules (CCH) J 2511) (1995));

PHLX Bylaws § 10-8 (Philadelphia Stock Exchange Guide (CCH)

{ 1232 (1996)); PSE Rule 12 (Pacific Stock Exchange Guide (CCH)

J 6435 (1993)).

The NASD and NYSE have now changed their rules to remove

the requirement that statutory claims of employment discrimination

must be arbitrated at the request of either party, though other

employment claims remain subject to arbitration, and the exchanges

(Cont’d)

The Petitioner has admitted that she executed her Form

U-4 agreement (R. 3, J 22), though, like the plaintiff in Gilmer,

she complains that it was “a condition of her employment.” /d.

But she does not dispute that the Court held Gilmer’s Form

U-4 agreement enforceable even though it was “required by his

employment.” 500 U.S. at 23. The Petitioner also contends that

the “language of the arbitration agreement was non-negotiable.”

Petition at 4. But she does not dispute the Seventh Circuit’s

observation that arbitration occurs under the agreement’s terms

only if the employer or the employee requests it,° and whether

(Cont'd)

still provide an arbitration forum for those who wish to arbitrate statutory

discrimination claims. The NASD Rules (Rule 10201) were amended

effective January 1, 1999. See SEC Rel. No. 34-40109, 63 Fed. Reg.

35299, 1998 WL 339422. The NASD rule change is not retroactive.

See NASD Regulation answers to frequently asked questions, <http://

www.nasdr.com/2805.html>. The NYSE proposed rule change (SEC

Rel. No. 34-40479, 63 Fed. Reg. 52782, 1998 WL 670164) was

approved by the SEC on December 29, 1998 (SEC Rel. No. 34-40858,

64 Fed. Reg. 1051, 1999 WL 3315), and is silent on retroactivity. See

Koveleskie, A. 3an.1.On October 1, 1998, the SEC granted accelerated

approval of the PHLX’s proposal to discontinue its independent

arbitration program. PHLX now refers member firms and registrants

to the NASD arbitration forum. SEC Rel. No. 34-40517, 1998 WL

681447. On February 22, 1999, the CBOE amended its rules, effective

that date, to provide that claims involving discrimination, including

sexual harassment, are “not appropriate for arbitration at the Exchange.”

SEC Rel. No. 34-41080, 1999 WL 89027. On February 3, 1999, the

PSE proposed an amendment to its arbitration rules to mirror the

NASD’s and NYSE’s rule changes for arbitration of statutory

employment claims. The SEC approved the PSE’s proposed rule change

on April 30, 1999. SEC Rel. No. 34-41350, 1999 WL 261839.

6. Contrary to the Petitioner’s assertion that the Form U-4 requires

arbitration “at the employer’s option,” Petition at 4, either side may

request arbitration, and sometimes it is the employee who does so. See,

e.g., Glennon v. Dean Witter Reynolds, 83 F.3d 132, 134 (6th Cir. 1996)

(employee demanded arbitration of employment-related dispute; court

affirmed arbitration award for employee, including $750,000 in punitive

damages).

’

italien

the parties choose to request it is fully negotiable. A. l6a &

n.4. Indeed, the Petitioner’s counsel have negotiated agreements

with two large bre «:age firms (Merrill Lynch and Smith

Barney) not to reque.si arbitration of employment discrimination

claims, and have publicized those negotiated agreements by

posting web sites. See <http://www.classactionmerrill.com>;

<http://www.classactionsb.com>.

B. The Petitioner’s Complaint and Proceedings Below.

The Petitioner was employed by Respondent until April

1996, when she walked off the job, claiming “constructive

discharge” because of alleged denial of equal pay and

opportunities and alleged inappropriate comments. R. 3,

{I 4-15.’ She filed an EEOC charge, file-stamped by the EEOC

on July 2, 1996, R. 1, Ex. A, but before the EEOC made a

determination she requested a right-to-sue letter. She filed her

initial complaint on March 31, 1997. R. 1. The Respondent

promptly moved to compel arbitration in accordance with the

Petitioner’s Form U-4 arbitration agreement and the exchanges’

rules. R. 4, 5. In response, the Petitioner filed an amended

complaint, R. 3, challenging the enforceability of her arbitration

agreement on numerous grounds, most of which are not raised -

in this Court. The Respondent renewed its motion to compel

arbitration, R. 7, 8, and the motion was fully briefed by May

29, 1997. R. 13.

The District Court held two brief status hearings in August

1997 (8-7-97 Tr.; 8-12-97 Tr.), but did not entertain argument

on the motion. On March 18, 1998 the District Court denied

the motion to compel arbitration in a brief minute order. R. 31.

The Respondent appealed the denial, and on February 4,

1999 the Seventh Circuit reversed, rejecting each of the

7. Many of the alleged incidents are alleged to have occurred as

early as 1986, far outside the 300 day period preceding the filing of the

Petitioner’s EEOC charge. Such claims are untimely. See Skouby v.

Prudential Ins., 130 F.3d 794, 796, 797 (7th Cir. 1997).

Petitioner’s arguments why she should be excused from her

agreement to arbitrate. A. 1a.

C. The Record. ~

The Petitioner asserts that she sought to take discovery and

that the record contains “undisputed record evidence.” Petition

at 5. In fact, the Petitioner never propounded any discovery at

all, and the District Court held no hearings so as to create any

evidentiary record.

In her response to the Respondent’s renewed motion to

compel arbitration, R. 11, the Petitioner attached a variety of

documents, which she now calls the “undisputed record

evidence.” Those attachments are not, of course, necessary or

dispositive of such matters as the rules of the exchanges, which

are published and readily available.

The Petitioner also refers to another attachment, a collection

of 33 photocopies of NYSE arbitration awards, R. 11 at Ex. J,

from which she invites conclusions about the imposition of fees

in arbitration. The same collection of 33 awards (selected and

assembled by undisclosed means) has been presented to other

courts, including the First Circuit, which observed that “it does

not appear to be the usual situation that a plaintiff is asked to

bear forum fees. . . . [I]n the thirty-three arbitration cases ...

only one plaintiff who prevailed on statutory grounds was denied

fees and costs.” Rosenberg v. Merrill Lynch Pierce Fenner &

Smith, Inc., 170 F.3d 1, 15-16 (1st Cir. 1999). Nor are securities

industry arbitrations limited to these 33 cases. NASD and NYSE

arbitration decisions are published by Westlaw in the FSEC-

ARB database, and those published results reinforce the First

Circuit’s conclusion.

The Petitioner also refers to R. 11, Ex. I, a photocopy of

an Arbitrator’s Manual (misidentified as dated 1996; Ex. I is

actually dated 1992), “compiled by members of the Securities

Industry Conference on Arbitration (SICA) as a guide for

a a

arbitrators” (R. 11, Ex. 1, Preface), as “undisputed evidence.”

Petition at 6. She emphasizes a single sentence in the 50-page

manual, stating that arbitrators “are not strictly bound by case

precedent or statutory law,” but omits all context. In fact, the

manual stresses on the one hand the informality of arbitration,

including the familiar principle that “strict rules of evidence”

need not be applied and that “generally arbitration proceedings

should be more informal and should permit more liberal

introduction of evidence than would be permitted in courts”

(Ex. I at 22-23), and on the other hand the arbitrator’s duty to

follow applicable statutes on matters of liability or attorney’s

fees (seeking guidance from the parties through briefs and oral

argument) (id. at 24, 28), strengthened by an admonition that

an award may be vacated if the arbitrator disregards the law

(id. at 26).

The record does contain some undisputed facts: the

admissions contained in the amended complaint. Among those

admissions is the Petitioner’s acknowledgment that, so far from

being “a worker who has lost her job and is without gainful

employment” who allegedly may be chilled from asserting Title

VII claims (Petition at 11; see also id. at 8), the Petitioner was

promptly reemployed in a securities position following her

resignation from the Respondent. R. 3, { 71.

REASONS FOR DENYING THE WRIT

The FAA provides that arbitration agreements are “valid,

irrevocable, and enforceable, save upon such grounds as exist

at law or in equity for the revocation of any contract.” 9 U.S.C.

§ 2. The Court has recognized that the FAA embodies a “liberal

federal policy favoring arbitration agreements” and “establishes

that, as a matter of federal law, any doubts concerning the scope

of arbitrable issues should be resolved in favor of arbitration.”

Moses H. Cone Mem. Hosp. v. Mercury Const., 460 U.S. 1,

24-25 (1983). This is true even when the claims to be arbitrated

involve important statutory rights. Gilmer, 500 U.S. at 26. As

the Court has repeatedly emphasized,

By agreeing to arbitrate a statutory claim, a party

does not forgo the substantive rights afforded by

the statute; it only submits to their resolution in an

arbitral, rather than a judicial, forum.

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 628 (1985). See also Gilmer, 500 U.S. at 26; Rodriguez .

de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 481

(1989); Shearson/American Exp., Inc. v. McMahon, 482 U.S.

220, 229-30 (1987).

The Court has made clear that a party may challenge the

enforceability of an arbitration agreement only on limited

grounds. The first is suggested by the terms of the FAA itself:

contract formation defects (“such grounds as exist at law or in

equity for the revocation of any contract”) may prevent the

formation of a valid arbitration agreement. See Gilmer, 500 U.S.

at 33 (“the FAA’s purpose was to place arbitration agreements

on the same footing as other contracts,” subject to contract-

formation defenses such as fraud). Such challenges must be

evaluated under state contract-formation law (see First Options

of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1993)), and the

state law cannot single out arbitration agreements, but must be

applicable to “any contract,” or it is preempted by the FAA

(see Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 686-88

(1996); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265,

281 (1995); Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987)).

The Petitioner’s complaints about arbitration — that she

might incur forum fees or that the arbitrators might misapply

the law — are not complaints about contract formation under

state law.®

8. The Petitioner does offer comments that she lacked knowledge

about the workings of securities industry arbitration when she signed

her Form U-4, that she “had no choice,” and that the agreement was

“non-negotiable.” Petition at 4. She does not expressly urge these as

grounds to invalidate her contract, and they are not grounds to invalidate

(Cont'd)

The second ground on which a party may challenge the

enforceability of an agreement to arbitrate statutory claims is

by showing that Congress intended to exempt the statute at issue

from the FAA. As the Court explained in McMahon:

The Arbitration Act, standing alone, . . . mandates

enforcement of agreements to arbitrate statutory

claims. Like any statutory directive, the Arbitration

Act’s mandate may be overridden by a contrary

congressional command. The burden is on the party

opposing arbitration, however, to show that

Congress intended to preclude a waiver of judicial

remedies for the statutory rights at issue.... If

Congress did intend to limit or prohibit waiver of a

judicial forum for a particular claim, such an intent

“will be deducible from [the statute’s] text or

legislative history,” . . . or from an inherent conflict

between arbitration and the statute’s underlying

purposes.

McMahon, 482 U.S. at 226-27, quoting Mitsubishi, 473 U.S. at

628. See also Gilmer, 500 U.S. at 26-32 (finding no

inconsistency between ADEA and FAA to indicate that

Congress intended to exempt ADEA from FAA).

The prime questions posed by the Petition are whether the

identified issues — the risks that arbitrators will impose forum

(Cont'd)

a contract under Illinois law. See, e.g., Bunge Corp. v. Williams, 45 Ill.

App. 3d 359, 364-65, 359 N.E.2d 844, 847-48 (Sth Dist. 1977)

(upholding arbitration agreement despite plaintiff's claim he did not

appreciate what he signed); Kewanee Prod. Credit Ass'n v. G. Larsons

& Sons Farms, 146 Ill. App. 3d 301, 305, 496 N.E.2d 531, 534 (3d

Dist. 1986) (cited by Seventh Circuit, A. 12a-13a, for the proposition

that “Illinois law does not void contracts when the parties have unequal

bargaining power, even if the proposed contract is a so-called ‘take-it-

or-leave-it’ deal and ‘consent to [the] agreement is secured because of

hard bargaining positions or the pressure of financial circumstances’ ”’).

fees or misapply the law — demonstrate congressional intent

to exempt Title VII from the FAA. These questions do not merit

review. Nor does the final question —- whether the 1991 Civil

Rights Act’s provision that arbitration is “encouraged . . . where

appropriate and to the extent authorized by law” actually shows

a congressional intent to bar arbitration — merit review.

THE “FORUM FEES” ISSUE

DOES NOT MERIT REVIEW.

The Petitioner asserts that a claimant in securities arbitration

may incur expenses — filing and forum fees — that have no

direct counterpart in federal court litigation, and that the risk

such fees will be imposed may chill unemployed claimants of

straitened means from asserting Title VII claims. Review of

this claim should be denied because: (1) the Petitioner lacks

standing to assert it; (2) the issue is not an unsettled one of

great importance; and (3) the asserted circuit split does not exist.

A. The Petitioner Lacks Standing.

The Petitioner asserts that “the possibility that expensive

fees may be assessed against a worker who has lost her job and

is without gainful employment will chill her willingness to

arbitrate her discrimination claims.” Petition at 11. Even if this

“possibility” were real,® the Petitioner lacks standing to

9. In fact, fees may be waived in case of hardship and arbitrators

retain discretion how to allocate fees between the parties. See SEC

Rel. 34-41056, 64 Fed. Reg. 10041, 10048 & n.95 (March 1, 1999):

NASD Regulation has stated it will waive the initial filing

fee and hearing session deposit at the time of filing if a

party can demonstrate financial hardship. Arbitrators also

may order a respondent to reimburse a claimant for the

amount of the filing fee paid at the beginning of the case.

(Cont'd)

challenge the chill experienced by the unemployed, for she is

employed. R. 3, { 71.

A party “has standing to seek redress for injuries done to

him, but may not seek redress for injuries done to others.” Moose

Lodge No. 107 v. Irvis, 407 U.S. 163, 166 (1972). When a

plaintiff herself is “not chilled, but seek[s] only to represent

those ‘millions’ who[m] [she] believe[s] are so chilled, [she]

clearly lack[s] that ‘personal stake in the outcome of the

controversy essential to stanc.ng.’ ” Tatum v. Laird, 408 U.S.

1, 14 n.7 (1972), quoting Baker v. Carr, 369 U.S. 186, 204

(1962).

B. There is No Unsettled Issue of Great Importance.

Apart from the question of chill, the Petitioner suggests

that it would violate the substantive statute (Title VII) to enforce

an agreement to arbitrate, when the arbitral forum may involve

expenses without counterpart in litigation. The Court rejected

precisely such an argument in Vimar Seguros y Reaseguros

S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995). The petitioner

there had entered an agreement to arbitrate disputes about a

shipment of goods from Morocco to Boston before a panel of

Japanese arbitrators in Tokyo, but sought instead to litigate a

dispute in federal court in Boston. The petitioner argued that

the “inconvenience and costs of proceeding in Japan” would

undermine the substantive protections of the governing statute

(the Carriage of Goods by Sea Act (“COGSA”)), and that

(Cont'd)

See, e.g., In re Arbitration between Owen-Williams and Merrill Lynch,

1997 WL 34966 (NASD, Nov. 12, 1997), at *2 (waiving fees because

of hardship). See also SEC Rel. No. 34-41056, 64 Fed. Reg. at 10048,

10050 (“fees are not automatically imposed on either party... .

[Arbitrators make fee allocations after a hearing on the record”); id. at

10050 (“it is the arbitrators who decide who will pay [fees] in any

individual case”); NASD Rules 10205, 10332; NYSE Rule 629.

Published arbitration decisions suggest that employers usually bear all

or a substantial portion of forum fees even when they prevail.

COGSA therefore took priority over the FAA. Jd. at 532. The

Court rejected this argument, holding that there is a difference

“between explicit statutory guarantees and the procedure for

enforcing them, between applicable liability principles and the

forum in which they are to be vindicated,” and any

“inconvenience and costs” associated with the arbitral forum

were no reason to invalidate the agreement to arbitrate. Jd. at

534.

The Court reached a similar conclusion in Carnival Cruise

Lines, Inc. v. Shute, 499 U.S. 585 (1991). Shute held a pre-

printed form agreement with a forum-selection clause

enforceable, despite the inconvenience and expense of the forum

(Florida) to the plaintiff (a resident of Washington State). The

Court rejected the plaintiff's argument that “unreasonable

hardship in asserting [substantive statutory] rights” would

undermine the substantive protections of the governing statute

(the Limitation of Vessel Owners’ Liability Act). Jd. at 596.

The issue asserted here — whether the transaction cost of

resolving a statutory claim in an alternative forum compromises

substantive statutory rights, so as to support an inference that

the alternative forum is irreconcilable with the statute — is not

an unsettled issue of great importance, for the Court has already

resolved it in Vimar Seguros and Shute.

Indeed, the Petitioner’s assumption that arbitration is more

expensive than litigation is hardly established. Though arbitral

forum fees (if they are imposed on a claimant at all) may have

no precise litigation counterpart, they are only one component

of the possible expenses of arbitration versus litigation.'° The

Court has recognized that arbitration and litigation procedures

are not identical, and that there are trade-offs of advantages

10. See SEC Rel. No. 34-41056, 64 Fed. Reg. at 10050 n.107

(“Litigation is likely to involve other significant costs associated with

depositions and attorney fees that would likely be lower in an arbitration

setting.”).

between the two. Gilmer, 500 U.S. at 31. The aim of arbitration

is to seek “streamlined proceedings and expeditious results” in

order “to keep the effort and expense required to resolve a

dispute within manageable bounds.” Mitsubishi, 473 U.S. at

633. Arbitration “is usually cheaper and faster than litigation.”

Allied-Bruce Terminix, 573 U.S. at 280. See also Rosenberg,

170 F.3d at 16 (“arbitration is often far more affordable to

plaintiffs and defendants alike than is pursuing a claim in

court”).!!

Apart from the speed of proceedings, litigation may involve

expenses not found in arbitration. In court, a losing plaintiff's

liability for the other side’s costs under Fed. R. Civ. P. 54(d)

(including, e.g., filing fees, deposition transcript costs, witness

fees, copying charges; see 28 U.S.C. § 1920) is virtually

automatic, and may be substantial.'* The published NYSE and

11. Even if the forum fees are viewed in isolation, the Petitioner’s

asserted contrast between a litigation forum subsidized by taxpayers

and an unsubsidized arbitral forum is a false one. The entire cost of

securities industry arbitration is not imposed on the litigants. See SEC

Rel. 34-41056, 64 Fed. Reg. at 10047 (“[T]he filing fees and hearing

session deposits . . . do not cover the cost of administering the [NASD

arbitration] program”); id. at 10047 n.89 (“filing and hearing session

fees” pay for approximately 50-68% of the direct costs for administering

individual cases); id. at 10047 n.89, 10048 n.97 (filing fee and hearing

session fees do not cover “NASD Regulation’s general costs for

administering the arbitration department, including costs for arbitrator

recruitment and training, computer systems, office space, senior

management, and legal services;” member surcharges pay for NASD

Regulation’s general costs for arbitration administration and for the

shortfall (estimated to be $6.1 million per year) between fees assessed

in individual cases and the direct costs for administering those cases).

See also id. at 10048 (“the arbitration program is subsidized by the

NASD and its members”); NASD Notice to Members 99-23 (March

18, 1999) (“Since its adoption of the Code in 1968, the NASD has

subsidized a substantial portion of the cost of the arbitration program

from general member assessment revenue.”).

12. See, e.g., Delta Air Lines, Inc. v. August, 450 U.S. 346, 352

(Cont'd)

NASD arbitration decisions show that in arbitration, unlike in

litigation, losing claimants are rarely assessed costs (suggesting

that arbitrators’ freedom from strict adherence to the rules of

litigation benefits plaintiffs).

Even if there were reason to believe arbitration is more

expensive overall than litigation (which appears doubtful), it

would be no reason to hold that Congress intended to preclude

agreements to arbitrate Title VII claims, as Vimar Seguros

makes clear. Because this issue is not an important unsettled

one, the Court should deny review.

C. No Circuit Split Exists.

The Petitioner asserts that a circuit split exists on the

question whether a risk of incurring forum fees renders an

(Cont'd)

(1981) (even for a civil rights plaintiff, “liability for costs is a normal

incident of defeat”); Contreras v. City of Chicago, 119 F.3d 1286, 1295

(7th Cir. 1997) (civil rights plaintiff who loses is liable for costs unless

narrow exception such as indigence applies; chilling effect on civil

rights claims is not a reason to deny costs); Cypress-Fairbanks Indep.

School Dist. v. Michael F., 118 F.3d 245, 256-57 (Sth Cir. 1997) (chilling

effect is no reason to deny a prevailing defendant Rule 54(d) costs;

costs of $6,770 imposed on losing disabilities/civil rights plaintiff);

Jones v. Continental Corp., 789 F.2d 1225, 1233 (6th Cir. 1986)

(rejecting argument that “taxing costs against a losing civil rights

plaintiff would conflict with the remedial purposes of Title VII’);

Poe v. John Deere Co., 695 F.2d 1103, 1108 (8th Cir. 1982) (same);

Delta Air Lines, Inc. v. Colbert, 692 F.2d 489, 490-91 (7th Cir. 1982)

(same); Barnett v. City of Chicago, 1999 WL 138813, at *7-8, 10 (N.D.

Ill. March 5, 1999) ($11,674.89 in costs imposed on losing plaintiffs,

despite claims of hardship and chilling effect on assertion of important

civil rights claims); Pion v. Liberty Dairy Co., 922 F. Supp. 48, 50-51

(W.D. Mich. 1996) (same; costs of more than $8,000 awarded against

losing plaintiff); Ezold v. Wolf, Block, Schorr & Solis-Cohen, 157 F.R.D.

13, 18 (E.D. Pa. 1994) (same; more than $12,000 in costs imposed on

losing plaintiff).

en ee

arbitration agreement unenforceable. The supposed split of

authority does not exist.

Shankle v. B.G. Maintenance Management, 163 F.3d 1230,

1234-35 (10th Cir. 1999), held an arbitration agreement invalid,

but only because it mandated in advance that the employee must

pay forum fees regardless of outcome (a result that may be an

improper prospective waiver of a prevailing Title VII plaintiff’ s

right to recover costs, 42 U.S.C. § 2000e-5(k)). Shankle

expressly stated that other arbitral schemes are not invalid, citing

Gilmer and the securities arbitration scheme at issue here.

163 F.3d at 1234 & n.3. In contrast to Shankle, under securities

arbitration the arbitrator remains free to waive or allocate costs

as appropriate, as the Seventh Circuit held below. A. 10a.

Paladino v. Avnet Computer Techs., 134 F.3d 1054

(11th Cir. 1998), also denied arbitration, but on the ground that

the arbitration agreement forbade arbitrators from awarding Title

VII or ADEA remedies, making the agreement either not extend

to Title VII or ADEA claims (id. at 1058), or contain an unlawful

limitation of remedies (id. at 1060-62). Although the

concurrence expressed additional concern about the cost of

arbitration to plaintiffs, the court’s holding was based on the

limitation of remedies.

No other case cited by the Petitioner denied arbitration

because of potential forum fees. The Petitioner assumes that

the Ninth Circuit would do so, Petition at 10, simply because it

denied arbitration of certain claims on different grounds.

Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir.

1998). Since the Ninth Circuit did not address the forum fees

issue at all (and actually compelled the plaintiff to arbitrate

certain other claims, id. at 1200, 1203) it cannot fairly be said

to have “split” with any court. Nor can the Third Circuit be said

to have “split” the other way, simply because it allowed

arbitration in Seus v. John Nuveen & Co., 146 F.3d 175

(3d Cir. 1998), for Seus likewise did not address this issue.

Nor did the D.C. Circuit deny arbitration on this ground.

Instead, in Cole v. Burns Int’l Security Servs., 105 F.3d 1465,

1483-86 (D.C. Cir. 1997), the court construed an AAA

arbitration agreement as not allowing employees to bear forum

fees, and compelled arbitration.

Contrary to the Petitioner’s assertion, neither of the

remaining circuits she identifies (the Seventh Circuit (below)

and the First Circuit (Rosenberg)) held that securities arbitration

“requires employees to pay expensive forum or filing fees.”"’

Petition at 9. Instead, they recognized that securities arbitrators

have discretion to waive or shift fees, and that it is premature to

complain of burdensome fees when none have been imposed.

A. 10a; Rosenberg, 170 F.3d at 15.

The asserted circuit split is illusory and no reason to grant

review.

Il.

THE “MIGHT NOT FOLLOW THE LAW”

ISSUE DOES NOT MERIT REVIEW.

The Petitioner fears that arbitrators will misapply the law.

Petition at 14-16. She bases this fear on a single phrase from

the 50-page Arbitrator’s Manual, taken out of context. Courts

have repeatedly recognized that the manual does not counsel

arbitrators to ignore the law.'* In any event, no arbitrator has

13. The Petitioner cites no case to support her contention that an

arbitral filing fee being higher than a court filing fee invalidates an

arbitration agreement, much less a circuit split on the issue. In fact, the

D.C. Circuit found no problem with an arbitral filing fee. Cole, 105

F.3d at 152 n.12. See also Howard v. Anderson, 36 F. Supp. 2d 183,

186 (S.D.N.Y. 1999) ($500 arbitral filing fee is not inconsistent with

Title VII).

14. See, e.g., Illyes v. John Nuveen & Co., 949 F. Supp. 580, 584

(N.D. Ill. 1996):

(Cont'd)

aint te me

OR ES eR ee es eee See SO

ee re ae

ee =

applied any law in this case, because no arbitration has occurred.

Review of this issue is unwarranted because: (1) the objection

is premature; and (2) there is no circuit split.

A. The Objection is Premature.

The Court has repeatedly stated that “there is no reason to

assume at the outset that arbitrators will not follow the law.””

Instead, the review stage after arbitration has occurred is the

proper time to consider this issue: “[A]lthough judicial scrutiny

of arbitration awards necessarily is limited, such review is

sufficient to ensure that arbitrators comply with the requirements

of the statute.”’°

(Cont'd)

[T]he NASD arbitration manual does not instruct arbitrators

that they do not have to follow the law; it merely states

that they are not “strictly bound by case precedent or

statutory law.” The arbitrators are also told that if they

manifestly disregard the law, the award may be vacated.

See also Seus v. John Nuveen & Co., 1997 WL 325792, at *7 (E.D. Pa.

June 2, 1997) (“In fact, the arbitrator’s training guide does not tell

arbitrators that they do not have to follow the law”), aff'd, 146 F.3d

175 (3d Cir. 1998), cert. denied, U.S. _, 119 S. Ct. 1028 (1999);

Rosenberg, 170 F.3d at 16n.10; Koveleskie, A. 9a; Duffield v. Robertson

Stephens & Co., 1996 U.S. Dist. LEXIS 21571, at *17-18 (N.D. Cal.

Aug. 26, 1996) (rejecting claim based on instructions in the Arbitrator’s

Manual, court holds that “NYSE arbitration scheme does adequately

protect plaintiff's Title VII rights”), aff'd in part, rev'd in part on other

grounds, 144 F.3d 1182, 1190 n.7 (9th Cir.), cert. denied, US. _,

119 S. Ct. 445 (1998).

15. McMahon, 482 U.S. at 232 (1987). See also Mitsubishi, 473

U.S. at 634 (“We decline to indulge the presumption that the parties

and arbitral body conducting a proceeding will be unable or unwilling

to retain competent, conscientious, and impartial arbitrators”);

id. at 636.

16. McMahon, 482 U.S. at 232. See also Gilmer, 500 U.S.

at 32 n.4; Mitsubishi, 473 U.S. at 636-37 & n.19.

The Court recently considered this issue again in Vimar

Seguros, where the arbitration agreement specified a Japanese

arbitral forum. The plaintiff acutely feared that the arbitrators

would fail to apply the applicable U.S. statutory law and

therefore argued that his arbitration agreement was invalid. The

Court held this claim “premature,” reaffirming that the time to

consider the arbitrators’ compliance with the law was on review

because the court “will have the opportunity at the award-

enforcement stage to ensure that the legitimate interest in the

enforcement of the ... laws has been addressed.” Vimar

Seguros, 515 U.S. at 540, quoting Mitsubishi, 473 U.S. at 638.

The Petitioner contests the Court’s repeated conclusion that

review will be sufficient, arguing that the standard of review is

too strict. For example, the Petitioner argues that a prevailing

plaintiff may be entitled to attorneys’ fees as a matter of law,

yet not be awarded them by an arbitrator. Petition at 14-16.

Review is sufficient, however, not only when arbitrators are

expressly urged to disregard the law, Montes v. Shearson

Lehman Brothers, Inc., 128 F.3d 1456, 1464 (11th Cir. 1997),

but also when they are advised of the law and do not follow it.

The cases demonstrate that if a plaintiff has an entitlement

(for example, to attorneys’ fees) and specifically advises the

arbitrator of the law, an erroneous denial of fees may be reversed,

even under a strict standard of review. Contrast DiRussa v. Dean

Witter Reynolds, Inc., 121 F.3d 818, 822 (2d Cir. 1997), cert.

denied, __ U.S. __, 118 S. Ct. 695 (1998) (arbitrator did not

manifestly disregard the law because plaintiff did not tell

arbitrator of basis for entitlement to fees), with DeGaetano v.

Smith Barney Inc., 983 F. Supp. 459, 462-64 (S.D.N.Y. 1997)

(when plaintiff did advise arbitrator of law creating entitlement

to fees, the arbitrator’s failure to award fees was reversible under

the manifest disregard standard)."’

17. A party will have every opportunity to advise the arbitrators

of the law. Arbitrators are free and even encouraged to accept briefs.

See Valdiviezo v. Phelps Dodge, 995 F. Supp. 1060, 1070-71 (D. Ariz.

1997).

ee nO ene 7 ed

Because the Petitioner’s objection is premature, this issue

does not merit review.

B. There is no Circuit Split.

The Petitioner admits that there is no circuit split on the

“may not follow the law” issue, but she urges review because

“it is likely” there will be one in the future, based on an asserted

“shared reasoning” among decisions that have denied arbitration

on other grounds. Petition at 15. It is not appropriate to grant

review of an issue based on a party’s prediction of future circuit

conflicts that do not and may never exist.

Indeed, the Petitioner’s predictions that four courts “would

reject” the reasoning of the Seventh Circuit (Petition at 15)

cannot withstand scrutiny. For example, she asserts that the

Ninth Circuit would “[nJaturally” reject securities arbitration

on the “may not follow the law” theory, but overlooks the fact

that the Ninth Circuit compelled arbitration of a plaintiffs non-

statutory claims (Duffield, 144 F.3d at 1200, 1203), and has

compelled arbitration of Title VII claims in the past (Mago v.

Shearson Lehman Hutton Inc., 956 F.2d 932, 935 (9th Cir.

1992)). Similarly, Shankle and Paladino did not void arbitration

agreements because of supposed inadequate procedures, but

rather because of a “ ‘prospective waiver of a party’s right to

pursue statutory remedies,’ ” which the Court has condemned

as against public policy. Vimar Seguros, 515 U.S. at 540,

quoting Mitsubishi, 473 U.S. at 637 n.19.

And while the Fourth Circuit in Hooters of America, Inc.

v. Phillips did reject an arbitral forum because of its procedural

inadequacies, the court stated that its decision was based on

generally-applicable contract principles (the employer’s breach

of its promise to draft fair procedures), not on Title VII.

1999 WL 194438 (4th Cir. April 8, 1999), at *7. Otherwise, it

acknowledged, “[p]redispute agreements to arbitrate Title VII

claims are ... valid and enforceable.” Jd. at *3-4. The court

specifically cautioned that its decision should not “be

misunderstood as permitting” the kind of “full-scale assault on

the fairness of proceedings before a matter is submitted to

arbitration” (id. at *7) that the Petitioner has advocated.

This Court has stated that “insular distrust of the ability of

... arbitrators to apply the law” is not a basis for relieving a

party of its agreement to arbitrate. Vimar Seguros, 515 U.S. at

539. There is no reason to presume that the Petitioner and

Respondent will be “unable or unwilling to retain competent,

conscientious, and impartial arbitrators” to resolve their dispute.

Mitsubishi, 473 U.S. at 676. Rather, the Court of Appeals below

correctly applied controlling precedent when it concluded that,

in the unlikely event of an error, “judicial review of arbitration

awards is sufficient to protect statutory rights.” A. 1 la.

Il.

THE EFFECT OF THE 1991 CIVIL RIGHTS ACT ON

ARBITRATION AGREEMENTS DOES NOT

WARRANT REVIEW.

As discussed above, the FAA makes arbitration agreements

presumptively enforceable, unless: (1) no valid agreement exists

under state contract law (an issue not raised here); or

(2) Congress overrode the FAA in another statute. Having

argued in Sections I.A and I.B of the Petition that her arbitration

agreement is unenforceable on “forum fees” and “might not

follow the law” bases, without reference to the necessary legal

standard (whether Congress intended to override the FAA on

these bases), the Petitioner argues in the final section of her

Petition that in the 1991 Civil Rights Act amendments to Title

VII Congress did so intend. This argument cannot be

independent of the earlier “forum fees” and “might not follow

the law” arguments. Nor do the Petitioner’s arguments, when

directly addressed to the critical issue of Congress’s intent, add

any compelling reason to grant review: (1) the 1991 Act does

not address the “forum fees” or “might not follow the law”

issues, but rather “encourages” arbitration; and (2) while there

is a circuit split on whether the 1991 Act overrode the FAA for

Title VII claims, the clear trend in the circuits is to enforce

agreements to arbitrate Title VII claims.

A. The 1991 Civil Rights Act Does not Address the “Forum

Fee” or “Might not Follow the Law” Issues.

Section 118 of the 1991 Act states:

Where appropriate and to the extent authorized by

law, the use of alternative means of dispute

resolution, including . . . arbitration, is encouraged

to resolve disputes arising under [Title VII and other

civil rights statutes].

A. 42a. This section, the Petitioner argues, evinces a

congressional intent to override the FAA, carving out as

unenforceable those arbitration agreements affected by the

“forum fees” and “might not follow the law” issues. Petition at

17-19.

The Petitioner cites no statutory language to support her

position. The text of Section 118 nowhere refers either to forum

fees or to the possibility that arbitrators might not follow the

law. Indeed, the text of Section 118, so far from placing limits

on the enforceability of arbitration agreements, expressly

“encourages” arbitration.

The Court has made clear that if a statute’s text does not

evidence a congressional intent to preclude arbitration, the party

seeking to avoid arbitration must show “an irreconcilable

conflict” between arbitration and the statute’s underlying

purposes. McMahon, 482 U.S. at 238-39. The Petitioner asserts

that the purpose of the 1991 Act was to strengthen Title VII

(Petition at 17),'* but she does not explain why arbitration would

18. In particular, she mentions the addition of rights to damages

and a jury trial, and enhanced rights to attorney's fees. Any substantive

(Cont'd)

be inconsistent with that purpose, particularly when the statute

“encourages” arbitration. “ ‘By agreeing to arbitrate a statutory

claim, a party does not forgo the substantive rights afforded by

the statute; it only submits to their resolution in an arbitral,

rather than a judicial, forum.’ ” Rodriguez, 490 U.S. at 481,

quoting Mitsubishi, 473 U.S. at 628.

Instead of relying on the text, the Petitioner seeks refuge in

pieces of legislative history, which she asserts “demonstrate

Congress’s belief” that her particular agreement is

unenforceable. Petition at 18. But the text of Section 118 is not

ambiguous, particularly when viewed, as it must be, “with a

healthy regard for the federal policy favoring arbitration.”

Gilmer, 500 U.S. at 26. Absent such ambiguity, resort to

legislative history is neither legitimate nor appropriate, for

“legislative history is ‘only admissible to resolve doubt and not

to create it.’ In re Sinclair, 870 F.2d 1340, 1343 (7th Cir.

1989), quoting Wisconsin R.R. Comm'n v. Chicago, B. & O.

R.R., 257 U.S. 563, 589 (1922).

Even if it were appropriate to consider legislative history,

however, nothing in the legislative history of the 1991 Act

remotely addresses the issues of forum fees and the possibility

that arbitrators might not follow the law. Rather, the legislative

history reveals sharp debate about whether Title VII claims

should be arbitrable at all. Compare H.R. Rep. No. 40(1)97,

reprinted in 1991 U.S.C.C.A.N. 635; 137 Cong. Rec. H9505-

01, *H9530 (Nov. 7, 1991) (Rep. Edwards) (“No approval is

(Cont'd)

right to damages and attorney’s fees can be resolved in an arbitral forum.

See Gilmer, 500 U.S. at 32. Jury trial is a procedural, not a substantive,

matter (see Landgraf v. USI Film Prods., 511 U.S. 244, 280 (1994)),

and parties are free to forgo that procedure by electing an arbitral forum.

Indeed, the Court found no problem enforcing such an election in

Gilmer, even though the substantive statute there at issue (ADEA)

already featured a jury trial right (see Lorillard v. Pons, 434 U.S. 575,

580-85 (1978)). See Rosenberg, 170 F.3d at 11.

intended of the Supreme Court’s recent decision in Gilmer’)

with 137 Cong. Rec. H9505-01, *H9548 (Nov. 7, 1991) (Rep.

Hyde) (Section 118 “encourages the use of alternative means

of dispute resolution, including binding arbitration . . . . [T]here

is no reason to disfavor the use of such forums. See Gilmer’);

and 137 Cong. Rec. $15472-01, *S15478 (Oct. 30, 1991)

(Sen. Dole) (same).'? But “[t]he text adopted by the full Congress

declares that lawful ‘arbitration ... is encouraged to resolve

disputes arising from [Title VII].” Seus, 146 F.3d at 182

(brackets in original).

As the Court observed in Vimar Seguros, “ ‘when [the FAA

and another statute] are capable of co-existence, ... it is the

duty of the courts, absent a clearly expressed congressional

intention to the contrary, to regard each as effective.’ ” 515 U.S.

at 533, quoting Morton v. Mancari, 417 U.S. 535, 551 (1974).

Here, there is not even a hint of congressional intention, from

the text, purpose, or legislative history of Title VII, to make

Title VII override the FAA when a claimant might incur forum

expenses or an arbitrator might fail to follow the law — just as

the Court found no congressional intention to override the FAA

in precisely these circumstances in Vimar Seguros. Nor has the

Petitioner cited any case to the contrary. Without an unsettled

important issue or a conflict in the courts, there is no basis to

grant review of this issue.

B. The Effect of the 1991 Civil Rights Act on Gilmer Does

not Merit Review.

Rule 14.1(a) provides that “[t]he statement of any question

presented is deemed to comprise every subsidiary question fairly.

19. See Stephen Breyer, On the Uses of Legislative History in

Interpreting Statutes, 65 S. Cal. L. Rev. 845, 861-62 (1992) (observing

that such use of legislative history is like “looking over a crowd and

picking out your friends,” and noting that where the legislative history

of a statute is so confusing and contradictory that it is of no use in

ascertaining Congress's intent, courts should not attempt to use it).

included therein.” Although the Petitioner does not address it,

whether the 1991 Act overruled Gilmer presents such a question.

In the wake of Gilmer, and before Duffield, every circuit

court to consider the issue, including the Ninth Circuit, held

that a predispute agreement to arbitrate Title VII claims was

enforceable under the FAA.”°

In Duffield, a separate panel of the Ninth Circuit (Reinhardt,

Canby, and Restani, JJ.) held that the 1991 Act overruled

Gilmer, without attempting to distinguish Mago.”' Reasoning

that the legislative history of Section 118 demonstrated an intent

to codify pre-Gilmer law, which was hostile to arbitration, Judge

Reinhardt held that predispute agreements to arbitrate Title VII

claims, entered into as a condition of employment, are

unenforceable. 144 F.3d at 1189-90. Although the Petitioner

urged the Court of Appeals below to follow Duffield in this

20. See Cole, 105 F.3d at 1468-69; Austin v. Owens-Brockway

Glass Container, Inc., 78 F.3d 875, 881-82 (4th Cir.), cert. denied, _

U.S. __, 117 S. Ct. 432 (1996); Alford v. Dean Witter Reynolds, Inc.,

939 F.2d 229, 229-30 (Sth Cir. 1991) (opinion after Supreme Court

granted certiorari, vacated decision refusing to compel arbitration of

Title VII claim, and remanded for further consideration in light of

Gilmer); Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305, 307, 312

(6th Cir. 1991); Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 837

(8th Cir. 1997); Mago v. Shearson Lehman Hutton Inc., 956 F.2d 932,

935 (9th Cir. 1992) (Wallace, C.J., Goodwin and Kozinski, JJ.); Metz

v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1486-87

(10th Cir. 1994); Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698,

700 (11th Cir. 1992).

21. In fact, in an unpublished 1994 disposition the Ninth Circuit

considered and rejected the very arguments that persuaded a separate

panel of the court in Duffield. The court held that the plaintiff's “citation

to the legislative history, by which she attempts to distinguish Gilmer

and Mago, is unavailing.” Hurst v. Prudential Securities Inc., 21 F.3d

1113 (9th Cir. 1994) (table) (Lay, S.J., Thompson and Rymer, JJ.),

1994 WL 118097, at *6 n.2.

regard, she does not suggest that this Court should take review

on this issue.

The Respondent agrees that review is unwarranted for two

reasons. First, because the defendants in Duffield sought review

in this Court without seeking rehearing en banc, the Ninth

Circuit has yet to address the apparent intra-circuit conflict

between Duffield and Mago. Second, every circuit court to

consider the effect of Section 118 in light of Duffield has rejected

the Ninth Circuit’s reasoning. See Rosenberg, 170 F.3d at

10-12; Seus, 146 F.3d at 182-83 & n.1; Koveleskie, A. 5a-9a.

This Court denied review in Duffield and Seus earlier this Term.

As the issue continues to percolate, the clear trend is in favor of

enforcing predispute agreements to arbitrate Title VII claims.

It would better conserve this Court’s scarce resources to permit

the Ninth Circuit the opportunity to reconsider Duffield in light

of these developments.

CONCLUSION

The three issues presented here are not worthy of review

because, in addition to problems of standing and prematurity,

they present neither unsettled questions of great importance nor

involve a split in the circuits. Indeed, the Petitioner’s particular

objections to securities industry arbitration pursuant to Form

U-4 have no prospective vibrancy in light of recent changes to

the exchanges’ arbitration rules. The petition for writ of certiorari

therefore should be denied. If any review is allowed, it should

be limited to the issue whether the 1991 Civil Rights Act

overruled Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

20 (1991), and exempted civil rights laws, including Title VII

and ADEA, from the Federal Arbitration Act.

Respectfully submitted,

CATHERINE M. MASTERS

Counsel of Record

NEIL LLOYD

SCHIFF HARDIN & WAITE

Attorneys for Respondent

Warburg Dillon Read LLC

6600 Sears Tower

Chicago, Illinois 60606

(312) 258-5500

Dated: June 4, 1999

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.